Transfer Tax Legislation Proposed to Tackle Corporate Landlord Imbalance

Housing or, more accurately, the lack of safe and affordable housing has been at the forefront of the national consciousness for the past few years.  Inventory is at the heart of the issue, but it is not as simple not enough actual properties.  There is also a large part of the housing stock owned for investment purposes.  While some of the landlords are small professional investors, a large portion of investment properties are owned by large private equity firms with significant financial resources that they can bring to bear to outbid residential buyers and small investors. This has understandably caused friction amongst the different stakeholders competing for the homes.

Responding to their constituencies and to a real estate market that has remained stubbornly tight, elected officials have begun to try to address the problem through targeted legislation.  One such proposal is the Affordable Housing and Homeowner Protection Act championed by Senator Tammy Baldwin of Wisconsin.  The proposed legislation aims to curb the influx of corporate landlords by imposing a transfer tax on large investors who acquire at least sixteen single-family homes. The tax revenue generated is earmarked for a $50 billion program over ten years, dedicated to building and preserving approximately three million housing units across the nation.

This is not the first time Senator Baldwin has worked toward this effort and the new bill looks to be exceptionally similar to legislation introduced last year by Baldwin and her Democratic colleagues. The previous bill affected the long-term profitability of a property by eliminating interest deductions and depreciation for investors who acquired a minimum of 50 single-family rental homes. The current proposal, however, takes a different approach by introducing a transfer tax on qualifying investors.

Under the proposed legislation, the transfer tax would be applied based on the number of single-family homes owned by investors. Nonprofits, states, and localities are exempt from the tax. The tax rates are tiered as follows: 1% of the purchase price for investors owning 16-25 single-family homes, 3% for those owning 26-100 single-family homes, and 5% for investors with over 100 single-family homes.

While Senator Baldwin’s proposal has gained support from advocates for affordable housing, critics, including Heiner Giese, an attorney for the city’s landlord association, argue against the need for such legislation. Giese questions the discrimination against renters, expressing concerns that the legislation could result in fewer available rentals, negatively impacting those seeking to rent.    Based on my working with these small to medium independent investors, I think this argument is a bit specious and I am confident that smaller investors would and could fill provide needed rental capacity with the added benefit of a local connection.  I am actually surprised that the bill’s sponsors have not been more vocal on the potential benefit to small to medium real estate investors.  That said, the numbers do support the argument that the market has skewed toward the large investor.

Recent reports by the Journal Sentinel in Baldwin’s home state of Wisconsin have highlighted the increasing presence of out-of-state landlords in Milwaukee, contributing to nearly one in five rental homes having out-of-state ownership. The influx has been fueled by low-interest rates and relatively inexpensive housing prices. Notably, VineBrook Homes Trust, a Texas-based company, has become the largest owner of single-family rental homes in Wisconsin, acquiring around 1,000 homes locally and 25,000 nationwide.  I will leave it to you the reader to determine whether or not this concentration is good or not, but I can tell you that it does have an impact on local investors and their ability to find projects and operate their business.

As Senator Tammy Baldwin takes the lead in proposing the Affordable Housing and Homeowner Protection Act, the debate surrounding the impact of corporate landlords on local housing markets intensifies. According to a statement released by Baldwin’s office, the primary objective of the legislation is to disincentivize wealthy out-of-state investors from rapidly acquiring housing stock in states like Wisconsin. The senator contends that this influx has led to increased rent prices and reduced opportunities for home ownership, particularly for local residents.  The proposed legislation seeks to strike a balance between discouraging large-scale investors and addressing the pressing need for affordable housing. The bill’s fate will unfold in the legislative process, where stakeholders from various perspectives will have the opportunity to voice their concerns and contribute to shaping the final outcome.

Have an immediate need for investment real estate financing or just looking to be ready  when you find that perfect property?